Equities saw strong 2019 performances across the globe, so the big question for investors is whether the bullish momentum can continue. Templeton Global Equity Group’s Alan Bartlett and Tony Docal provide a look at what drove the positive performances around the globe in late 2019, and how they are poised to take advantage of any potential dislocations in the year ahead.

Shifting Market Leadership

Over the course of 2019, we saw a pretty significant shift in leadership, from the continued outperformance of growth stocks in the first part of the year to cyclical outperformance in the latter part.

The main drivers include the improving global economic outlook, decline in interest rates and accommodative central bank policy posture. In the first half of the year, investors focused on growth and quality, with bond proxy stocks (those investors look to for income and stability) outperforming. That all changed once the US Federal Reserve pivoted to a dovish stance and bond yields bottomed in the second half of the year.

In September, the bond proxies sold off sharply and value stocks and cyclicals rallied as renewed central-bank intervention raised expectations that the economic cycle would be extended, lifting interest rates. With the valuation and performance spread between cyclicals and defensives perhaps having reached their limits, this policy pivot and reflationary expectations were the catalyst needed for mean reversion. Yet, once again it was short-lived; in the fourth quarter of 2019, growth and quality again outperformed value.

In our Templeton portfolios, we have been working to diversify among different types of value and different economic exposures. This has included some higher quality but still attractively valued investments on the one hand, as well as cheap cyclical stocks with greater operating leverage on the other.

Recent examples of opportunities include conglomerates, which compound value over time, defensive exposures in industries like precious metals, utilities and telecommunications, and also opportunistic bargains in the volatile Hong Kong market.